News Releases

Cargill In The News

Current Issues

Media Tools

In a Flattening World, How Do Companies Keep from Falling Off?, May 1, 2006

Warren R. Staley - Chairman and CEO, Cargill, Incorporated
Address to the Society of American Business Editors and Writers’ Annual Meeting, Minneapolis, Minnesota

Introduction

It’s an honor to be here. In looking at your website, I notice Cargill and the Society of American Business Editors and Writers have a few things in common. For example, in your purpose statement you recognize that “economic freedom is inextricably linked to political freedom, and that an informed citizenry can ensure these freedoms are sustained.” Over my Cargill career, I have seen that empowering linkage many times. As my predecessor was fond of saying, “Trade promotes prosperity. Prosperity promotes peace.”

I also note that both Cargill and your organization have undergone profound change in the last 15 to 20 years. In 1988, the last time your organization visited Minnesota, the word “BLOG” could not be found in any dictionary. Today, I wonder how many of you folks have your own blog? (Show of hands?) And there are certainly many more members of this organization who work on TV and in other electronic media than ever before.

Cargill’s undergone a lot of change, too. In 1988, chairman Whitney MacMillan opened his remarks to this group by saying, “Welcome to our little ma and pa grain company in western Hennepin County.”

Of course he was joking. Even then we were an international provider of food and agricultural products and services. But we didn’t operate in the same way we do today. We have changed because the world has changed. In my remarks today I want to describe the impact that globalization is having on companies like Cargill, and how we are changing in response to those forces.

In doing so, I’m going to cite the work of a Minnesota native son, Thomas Friedman. I’m sure you know that Friedman is the Pulitzer-Prize winning columnist for the New York Times. What you may not know is that he grew up just about seven miles from this banquet hall, in a suburb known as St. Louis Park. His book, “The World is Flat,” is near the top of the best-sellers list, and it’s one of the best explanations of the changing global playing field that you’re ever going to read.

I’m not just saying that because he’s local, though I do note that Friedman’s worldview puts him in the company of the long list of ground-breaking internationalists the state of Minnesota has produced – Governor Harold Stassen’s involvement in the founding of the United Nations, and Vice President Walter Mondale’s long career of public service to name just two outstanding examples.

Cargill has shared in this outward-looking tradition as an international grain trader, food processor and solutions provider. We began our international expansion in the late 1920’s. Today, we are in 61 countries. More than half of our 140,000 employees are outside of the United States.

We operate mainly in the food business. One hundred years ago, the movement of food was mainly local – zero to 60 miles from the farm to the table. Today, it moves around the world. Your breakfast this morning, just like your car, may be made up of products from many different countries.

But Friedman tells us that we are entering a new era of globalization. It is now possible, he says,

Which prompts the question – at least to a person in my job: “If the world is flattening, where does that take Cargill, and other companies like it?”

Friedman argues that “Globalization 3.0” brings both new opportunities and new challenges. We have seen that very powerfully in our own businesses. Going from “international” to “global” takes you past simply engaging in business transactions across long distances, to an entirely different mindset, one that seeks close business collaboration across those long distances. As we consciously redefined ourselves as a global company, we gained more openness to new ideas, more sensitivity to different cultures and more collaboration among ourselves and with our customers.

And globalization also creates new challenges. Complexity multiplies, requiring more clarity around who makes decisions and where they are made. The pace of change accelerates, heightening the craving for security. New stakeholders emerge, requiring more careful balancing of conflicting values.

As you can see, a flattening world is not a more comfortable one. We need to be prepared, because a flattening world will promote prosperity and insecurity, progress and protectionism, growth and economic dislocation, all at the same time. So, let’s look at how this is playing out at Cargill.

One of my first acts as CEO was to press Cargill for clarity around our vision and our plans for growth and change over a decade. That process resulted in a new identification of Cargill’s purpose: To become “the global leader in nourishing people.” As I extrapolate this purpose into Friedman’s flattening world, I find three core elements of Cargill’s response that seem particularly relevant. They are summarized in the first three performance measures of our vision statement, which we believe are the building blocks of enduring growth. Those building blocks are:

Cargill’s Business Profile

Let me first describe our business briefly. We have distributed a handout that provides more detail. But the quick overview is this:

Against this broad profile, let me delve more deeply into these three core elements of Cargill’s approach to globalization.

Engaging Employees

Cargill is a privately owned business that provides customers – whether farmers or food manufacturers, retailers or restaurants – with the inputs they need to run their businesses and serve their customers well. As such, you might say we have none of the standard reasons for building a strong corporate brand:

Yet, we are working hard to build the Cargill brand. And we are working hard to ensure that Cargill people can deliver that brand experience to our customers, repeatedly and across all our businesses in all the countries where we do business. In fact, our branding effort is aimed at least as much at our own workforce as at our customers. Why? Because engaged employees are the critical first step in making the brand come to life. They are the ones who create distinctive value for our customers. And as Friedman clearly states, value creation in a flattening world takes different skills:

It is no coincidence, then, that our promise to customers is summarized in three words: “Collaborate, Create, Succeed.” This is the tag line for our advertising and the explanation behind the success stories told in the ads. It is about harnessing knowledge and insights across our many businesses and locations and applying them to what our customers need to succeed.

These ideas are key to employee engagement at Cargill. They involve the hardest kinds of change — change in what people believe — and how they behave. We’ve been working diligently at it for some time now, with the goal of making our employees living expressions of our brand. In the process, we’ve experienced both the opportunities collaboration opens and the insecurities that change causes us all to feel. There has been discomfort and anxiety along the way.

But it’s working, and it’s starting to show in our business results. Our sales revenues have steadily increased from 48 billion in 2001 to 71 billion in 2005, and will certainly top that in the fiscal year that ends for us on May 31^st. We are involved in cyclical businesses that have some degree of volatility, so we’re smart enough to know that there will always be ups and downs, but we’re confident that the more we engage our employees, the better our long-term performance will be in this flattening world.

Satisfying Customers

The second core element in our approach to globalization focuses on our customers. Everyone in business understands the pressure to do more each year with less. It’s the productivity that raises peoples’ living standards. It’s also what satisfies customers.

Satisfying customers is a complex challenge for us. Many of our businesses are commodity-based. These products have low differentiation and being low-cost is key. More of our customers every day, however, want more – not just helping them hold down their bottom line costs but also grow their top lines.

It’s not just Cargill, but all companies that have to meet ever rising expectations from their customers. Friedman describes it in his book:

What he means is that companies involved in merely shipping commodities – what he calls “vanilla” – will be in a hopeless competition with places in the world where vanilla-making is less costly. Only by adding value – the cream and the cherries, or better yet, the system for putting it altogether in a sundae — only by providing these will companies like Cargill be able to thrive and grow in the future.

Of course, Friedman was speaking figuratively. But, for a food company like Cargill that particular metaphor is almost literally true. At one time, our profitability rested on our ability to deliver huge amounts of basic food ingredients to our customers on time, in spec and less expensively than anyone else. Of course that’s still important, more so on a global scale than ever before. But what our customers are really looking for us to deliver is our knowledge.

To satisfy this set of rising customer expectations, we have positioned ourselves to deliver on a simple promise: to use Cargill’s knowledge and expertise to help customers succeed. Whether that’s an instantaneous trade or a long-term relationship, Cargill’s experience across the food system and around the whole world brings our customers unique insights.

At least, that’s what we thought. Just to make sure, we asked our customers about it. And we found that they did indeed give us credit for having deep knowledge – BUT, to their frustration, they felt that we often didn’t share it with them. They assumed all our knowledge wasn’t meant to be shared. So we set about proving to them that what we know can help them succeed.

There are many ways to measure success here. The simplest is awards and recognition from customers, which we are proud to win, but we recognize we must keep on winning. More complex is finding new ways of doing things – like putting cholesterol-reducing sterols in orange juice for Minute-Maid, making sugar-free chocolate that still tastes good for Russell Stover; or zig-zagging through traffic to deliver fresh meat to tiny Central American “tiendas, ” corner grocery stores that can only accept product by the armload rather than the truckload.

One of our greatest challenges was to change relationships from adversarial to being built on trust and shared goals. Farmers in particular often saw us as their adversary, the other side of a price negotiation in which there could be only one winner. So, we came up with a different approach – creating tools that enabled farmers to partner with us in marketing their grain—to gain from upswings in the market while protecting themselves from excessive downswings. This approach has enabled us to switch from being— the often resented — buyer of a farmer’s grain to the farmer’s trusted marketing agent. Most recently, as another way to partner with farmers, we have offered health savings accounts to them. In exchange for guaranteeing us a certain percentage of their crop, we help them set up a health savings account and we contribute up to several thousand dollars to it annually.

Enriching Communities

Globalization in Friedman’s sense goes beyond changed relationships with employees and customers to include a changed contract with our communities and society at large. Some speak about this as “corporate social responsibility” or sustainability. We prefer to think about it as good corporate citizenship. Our obligations as corporate citizens are anchored in our corporate mission – creating distinctive value – and in our business strategy for getting there through continuous improvement. Unless citizenship is core and integrated, it is only bolted on as an afterthought, or worse, it becomes “green washing” or a public relations ploy. The core of good corporate citizenship is critical in a global agri-food system where expectations and values are rising inexorably.

Good citizenship can manifest itself in at least three different ways:

Let me illustrate each briefly, starting with public policy.

A number of countries are looking to renewable fuels to lessen dependence on Mideast oil. Where should biofuels fit into that? If it’s ethanol and biodiesel, we have to look at the hierarchy of value for agricultural land use: food first, then feed and last fuel. Today we are providing subsidies to fuel uses while often erecting barriers to new food and feed technologies. Is this good land use policy? Does it make sense in poor crop years as well as good ones? Is it a sustainable long-term strategy?

If it’s fuel from waste products or biomass, we still need to develop the technologies that accelerate access. And where does biomass fit compared to other potential new fuel sources? More generally, we need to be clear about what interests are driving renewable fuels – is it farm policy? Energy policy? Environmental policy? Rural development policy? How do we get a thoughtful discussion of these choices, so that we end up both with the right policy choices and investor confidence in those choices?

Similarly, agricultural trade reform is much on the minds of people today. We know firsthand that trade-distorting agricultural policies waste scarce resources and hurt the poor. Yet they are politically entrenched and widespread globally. It is both important and difficult to bring these barriers and subsidies down. It will require both reductions in agricultural protection and changes in farm support policies to less distortive systems. But, if all act together, the social adjustment cost is lessened and the political pain is shared. Perhaps most important, it is the best way of lifting rural millions out of poverty by kick-starting their economic development – and giving them what Friedman calls a middle class state of mind.

A third area is agriculture’s impact on the environment. It is the largest user of land and fresh water, which is why agricultural practices are coming under closer scrutiny. It’s also why NGOs are using their leverage as consumers to press for changes up the supply chain. We are engaging more and more with customers and NGOs on these issues.

But as we do, it’s important to keep global needs and realities in mind. The wealthiest billion people on the planet may be willing to pay extra to embed their own values in how food is produced and distributed. The other five billion people, especially the three billion living on less than $2 per day, have other priorities, including better access to safe water and food, simple nutrition, and creating opportunities to improve their family’s lives. The global food system must, and can, do both. Science, education and collaboration are the most promising tools for accommodating these apparently conflicting goals.

My main point is not to set off a debate about a particular issue and the appropriate policy response. Rather, it is to suggest that we need to adjust our whole framework for integrating public policies with global realities. That framework, in my judgment, needs to be:

In a flattening and more thoroughly interconnected world, we need to be very conscious of the multitude of impacts any one decision can have. By keeping our focus on the public benefit, we can smooth, rather than hamper, that integration process and avoid some unnecessary and expensive adjustment costs down the road.

Let’s move now from public policy to business social behavior. In a flattening world, it is becoming necessary to have the same, high-quality business practices everywhere. We group those practices into four areas. One is business conduct – keeping honest records, avoiding corruption, treating business associates with respect.

A second area is people practices – going beyond simply complying with non-discrimination rules to proactively valuing diversity as a resource for competitive success.

A third area is environmental stewardship – meaning quality products, safe workplaces and non-polluting plants adhering to the same world-class standards regardless of where they are located.

Finally, we expect our businesses to be engaged positively with their local communities – making them better places to work and live.

Finally, let’s look at philanthropy. The most common philanthropic acts of companies come through grant-making and employee voluntarism. We believe that these are important tools for enriching the communities we touch. But we also believe that these draw on scarce, valuable resources that should be invested, not just spent. So, at Cargill, we have focused our corporate grant-making on three areas where we are knowledgeable and where we believe we can make a difference:

For example, we have ongoing partnerships with CARE and the World Food Program to feed vulnerable population groups, fortify traditional foods and treat conditions – like worms in children – that rob nutrition. We have similar partnerships with Conservation International and The Nature Conservancy addressing preservation of biodiversity and preserving and restoring fresh water supplies. And we have long partnered with schools and universities to enrich diversity and strengthen research and teaching in biological sciences.

Beyond normal grant-making we also try to address broader social issues and ills. The Cargill Foundation – a separate entity from Cargill’s corporate giving -- has chosen to devote a large segment of its resources to “prepare socio-economically disadvantaged children in the Twin Cities for success in school, work and life.” We believe this is a critical step in breaking the vicious cycle of poverty, especially as peoples’ individual well-being becomes increasingly tied to education. So, we are investing in a variety of programs to change outcomes for “at risk” kids.

An example is the Minnesota Early Learning Foundation, a public-private partnership designed to ensure all Minnesota kids are ready for school when they arrive at the kindergarten gate. Research tells us about four-fifth’s of the brain’s architecture is constructed in the first five years of life. The quality of child-care is critical in shaping brain development. Yet poor and uneducated families are 2-3 times more likely to have “unready” children. MELF is intended to find cost-effective ways of bringing quality child-care to these kids. Cargill chose to be a founding partner not because it directly fits our business mission but because it is critical to the broader community’s well-being, preparing our workforce of the future to compete in a flatter world.

Conclusion

I have leaned heavily on Friedman’s notion of a flattening world. Whether Friedman has every detail right is less important than his general insight that the process of globalization creates new challenges and also raises new business opportunities. The opportunities for growth have prompted Cargill to focus on creating a more innovative, agile corporate culture around engaged employees and satisfied customers. The challenges to growth have required us to spend more time and energy on enriching communities, through public policy dialogue, business social behavior and philanthropy.

We hope – and believe – this is the right mix for a flattening world. As one of Cargill’s first outside – or independent – directors, Vice President Mondale, once told us, “You are fortunate to be able to do good while doing well.” It’s the blessing – and challenge – of being in today’s global food economy.